Jill Kirby is Director of the Centre for Policy Studies.
In its 1997 Manifesto, New Labour promised to “decrease the bills of economic and social failure” It has failed to do so. The Treasury expects total social security payments in 2009/10 to be £186 billion. That’s more than the government will receive in income tax and corporation tax combined; clearly this is not sustainable. Yet any attempts to reduce the cost of welfare will be impossible unless the benefits system is simplified. David Martin’s report for the CPS shows that welfare is out of control due to the error, fraud, overpayment, duplication and sheer confusion built into the present system.
Take the case of a young woman on benefits, let’s call her Kirsty. She lives alone and is out of work. She gets Income Support of £64.30 a week; her rent and council tax are paid by her local authority. Would she be better off working? If she takes a job, her income support is reduced pound for pound against her wages. So far, so straightforward. But her housing benefits are also withdrawn, at the rate of 85p for every pound she earns. If she works 30 hours a week she qualifies for working tax credit, say £30 a week - but then for every extra pound she earns, Kirsty will pay 31p in income tax and national insurance and will lose 39p in tax credit - a total of 70p. Her extra net income of 30p in the pound then reduces her housing benefits by another 25.5p – so that Kirsty will lose 95.5% of every extra pound she earns. Jobcentre staff have to provide claimants like Kirsty with “Better Off” calculations, but these are difficult to prepare and often inaccurate because the system is so complex.
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